"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."--F.A. Hayek

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15 June 2010

Make That SUPERintendent

I heard this piece on Marketplace on my way home yesterday that discussed the ersatz economic impact of Arizona's new law regarding illegal aliens. I was struck by a few things. First there's this:

"In the last five weeks, we're down about almost 100 students," said Jeffrey Smith, superintendent of the Balsz Elementary School District.He says the state reimburses the district about $5,000 per child."The hundred students that we've lost translate into, I believe, a half-a-million dollars," he said.

So Mr. Smith gets an A in rudimentary arithmetic. But then there's:

The school year ended last Friday. During the summer break, more students are expected to leave town. If the district loses too much funding, it could be forced to cut teachers.

Yes, that is how it goes. If there are fewer students, there needn't be as many teachers. This little point particularly gets my goat as I am an advocate for school choice. One of the counter-arguments I hear is that "the public schools will lose funding." One, if students are going to different schools, the public school won't need as much money. Two, it's not their money, so they can't really lose it, can they? If they need more funds, they can get creative, just like private and parochial schools have done for generations.

Another point is that teachers can always be paid less, especially if there is less work to do. Politicians usually paint the scenario thus, that the teacher positions must be eliminated. What about reducing the overall cost of each position marginally? Well, ask the teachers (and I mean the teachers, not the teacher's "association") if they'd rather less money (considering a recession and almost zero inflation (for the past year, anyway)), or termination. I have a guess where most reasonable people would line up.

Pardon the digression, back to Marketplace. Then Superintendent Smith says:

"It can blight a community," the superintendent said. "So you have apartments that are less and less full. Businesses close down. So we're very concerned about what effect this will have on the economy in this area."

Well, blight is a possibility in this scenario. But it's only one of a few; a rather drastic one that usually takes years to manifest. What we know for a fact is that if there is a decrease in the demand for apartments, then land and labor currently used towards apartments now would be directed to other, more efficient ends. Businesses that, for whatever reason, are no longer viable go away and are replaced by businesses that are (or try to be). If the entire town eventually gets abandoned then...so what? Labor and capital that were there go elsewhere (the land stays until its needed again). Nothing is "destroyed."

Finally there's this:

Judy Gans studies the economics of immigration at the University of Arizona. She says the state doesn't have a surplus of young, low-skilled workers. So, if Arizona kicks out all the illegal immigrants, and replaces them with Americans from other states, taxpayers will still have to subside the low-skilled workers."Any low-skilled worker generally is going to pay less in taxes than they consume in social services," Gans said.

Well, yes, but this raises two points. First, illegal immigrants tend to be paid under the table, so taxes aren't collected. They also tend to use fewer social services because they get to keep the money they earn and use it their own utility and not have it used for them by the state for their own benefit. Second, in line with what I wrote above about teachers, if the cost of the social services gets too high, perhaps fewer services should be offered. You know, keep expenses in line with revenues.

I'm inclined to say that there is an obvious demand for more immigrant workers, but that's tough to grasp with unemployment at 10% (with a natural rate of around 4%). Costs to employers and consumers would undoubtedly go up if every job currently performed by an illegal immigrant were to be done by a legal worker. But that's because it costs more to employ someone legally. The employee takes home less money and it costs the employer more money than merely the wage paid to the employee due to payroll taxes. There is tremendous incentive for employers to employ illegals, and there is just as much incentive for some would-be low-income workers not to work at all, and thus enjoy the social services that the state provides which are rolled back as income increases.